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The BBC’s commercial activities: a landscape review

The success of the BBC’s commercial activities will be critical to the BBC and licence fee payers in the immediate years ahead, according to the National Audit Office (NAO) which has today published its first report on the BBC’s commercial activities, following an expansion in its statutory powers under the BBC Royal Charter.1

These activities generated revenue of £1.2 billion in 2016-17 and employed 4,900 staff in April 2017.2

Overall, the BBC’s total revenue from its commercial subsidiaries was broadly stable at more than £1.1 billion in each of the five years from 2012-13 to 2016-17. However, among the subsidiaries, only Worldwide made profits throughout the five years. Its profit after tax was £40.4 million in 2016-17, 68% lower than in 2012-13 (£127.6 million), though this was largely due to two one-off costs incurred in 2016-17.3

Between 2012-13 and 2016-17, Worldwide made £450 million of direct payments for programmes shown on the BBC’s Public Service Broadcasting (PSB) channels and other PSB services. It also paid dividends of £423 million, most of which (£312 million) went to supplement licence fee income in the BBC’s PSB divisions. The BBC retained £111 million of these dividends in its commercial reserves and used the reserves to lend to the main commercial subsidiaries to avoid incurring interest costs.

Including its four main subsidiaries (Worldwide, Studios, Global News, and Studioworks), at July 2017 the BBC had 110 subsidiaries of different types undertaking commercial activities. 93 of these were in Worldwide, which generated 90% of the BBC’s commercial revenue in 2016-17. The subsidiaries include those which exist to facilitate commercial operations in financial, legal and regulatory ways that are normal for international media organisations. The total number of subsidiaries has fallen by 23% since March 2012.

The BBC’s main subsidiaries operate in a rapidly changing and increasingly competitive market. Audiences are increasingly accessing content digitally, including via fast-growing global subscription video on demand services such as Netflix. The BBC’s commercial subsidiaries face increased competition and costs to secure the valuable Intellectual Property (IP) that underpins the contemporary media business model. In response, Worldwide has entered into more co-productions, partnerships with other international companies, and other projects. These actions could deliver greater financial rewards for the company, and the BBC as a whole, but also entail greater risks. Simultaneous with these developments, advertisers are spending more of their budgets online, putting pressure on the traditional business model for running TV channels, a development that affects both Worldwide and Global News.

A principal focus for Ofcom, the BBC’s regulator since 2017, will be the relationship between the BBC’s licence fee-funded PSB divisions and its commercial subsidiaries. The BBC is required to ensure that its commercial activities do not, as a result of their relationship with UK PSB divisions, distort the market or gain an unfair competitive advantage. The BBC must notify Ofcom if any commercial line of business is not making a commercial rate of return.

Ofcom can also assess material changes in the BBC’s commercial activities. It is currently considering the BBC’s plan to merge Worldwide and Studios in April 2018. The BBC Board has already determined that this development is not material, but Ofcom may reach a different view. The BBC wants to merge Worldwide and Studios to create a more integrated commercial business in order to compete in the increasingly competitive and consolidated global market.

The NAO highlights a number of challenges and risks the BBC faces. It is developing new BBC-owned IP, primarily in the form of TV series and formats, to drive growth. It will need to manage risk carefully to ensure that the funds it invests in such projects have the greatest impact possible in a crowded marketplace. The NAO has signalled that the BBC may also wish to consider whether Worldwide’s financial returns target, of £1.2 billion over five years, remains relevant, given the planned Worldwide and Studios merger and other changes that have occurred.

“The BBC’s expanding commercial activities are undertaken on behalf of licence fee payers and exploit the significant assets that licence fee payers have paid for. The public interest in holding the BBC to account for these activities is therefore clear. Granting the NAO access to the commercial subsidiaries for the first time is an important step in improving the transparency of the BBC’s operations. We will continue to scrutinise the BBC’s commercial activities to inform Parliament and to help the BBC optimise the value for money it delivers.”

Amyas Morse, head of the National Audit Office, 7 March 2018

Notes for Editors

4 main commercial subsidiaries in the BBC Group, as at December 2017
£1.2 billion revenue generated from the BBC's commercial activities in 2016-17
£312m total dividend paid from 2012-13 to 2016-17 by BBC Commercial Holdings to the BBC Group for use on public service broadcasting
4,900 staff employed by the BBC's main commercial subsidiaries in April 2017
16 countries in which the BBC has registered subsidiaries
110 subsidiaries owned by the BBC and undertaking commercial activities, as at July 2017, including the four main subsidiaries
£450 million in financial contributions by BBC Worldwide to programmes shown on the BBC's public service broadcasting channels and services between 2012-13 and 2016-17 (in addition to dividend payments)
1 April 2017 was the date on which BBC Studios became a commercial subsidiary of the BBC, having previously been a division of its public service broadcasting operations
1 April 2018 is the planned date on which BBC Studios and BBC Worldwide will merge to create a new commercial entity, also to be called BBC Studios

  1. In 2017-18, the BBC has four main commercial subsidiaries of varying size and complexity to manage its commercial activities.
    • BBC Worldwide, accounted for approximately 90% of the BBC's commercial revenue in 2016-17, mainly from the sale and distribution of TV content and formats internationally and in the UK.
    • BBC Studios, established as a company in April 2017, creates and produces content, principally TV programmes, for the BBC and other clients.
    • BBC Global News provides English-language news services overseas via the BBC World News TV channel and the BBC's international website, BBC.com.
    • BBC Studioworks provides TV production facilities, equipment and crews, and post-production services for the BBC and other clients, with bases in Elstree and London's White City.
  2. The figure of £1.2 billion is distinct from the BBC’s 2016-17 licence fee income of £3.8 billion, which it received to fund its PSB operations. The figure excludes the costs incurred by the commercial activities and related to a period before the creation of BBC Studios as a commercial company in April 2017.
  3. In 2016-17 Worldwide incurred two large one-off costs: a major change in the accounting treatment for distribution rights, worth £67.9 million, and a write-off of £12.5 million following the closure of BBC Store.
  4. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
  5. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund, nationally and locally, have used their resources efficiently, effectively, and with economy.  The C&AG does this through a range of outputs including value for money reports on matters of public interest; investigations to establish the underlying facts in circumstances where concerns have been raised by others or observed through our wider work; landscape reviews to aid transparency and good practice guides.  Our work ensures that those responsible for the use of public money are held to account and helps government to improve public services, leading to audited savings of £734 million in 2016.

 

PN: 15/18